Frasers Centrepoint Trust - DBS Research 2019-02-28: Ushering In A New Growth Era


Frasers Centrepoint Trust - Ushering In A New Growth Era

  • Frasers Centrepoint Trust set to acquire 17% stake in PGIM AsiaRetail Fund, locking in a rare opportunity to build a significant acquisition pipeline.
  • Underlying malls have similar DNA to Frasers Centrepoint Trust’s anchor malls, and are dominant players in their respective sub-markets.
  • Proforma estimates show 0.3% to 3.6% DPU accretion assuming 60% to 100% debt funding.
  • Maintain BUY and S$2.40 Target Price; estimates unchanged pending completion of the deal.

What’s New - Proposed acquisition to catalyse growth.

  • FRASERS CENTREPOINT TRUST (SGX:J69U) has proposed to acquire a 17.1% stake in PGIM Real Estate AsiaRetail Fund Limited for a consideration of approximately S$342.5m.
  • PGIM, Inc which has an AUM of US $1 tn, also owns the largest non-listed retail mall fund in Singapore – a portfolio of six retail malls and an office property in Singapore, as well as four retail mall assets in Malaysia.
  • Singapore retail portfolio is well-located along key transportation nodes, and mainly comprises suburban assets – Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1, and fringe mall Liang Court.
  • The Manager plans to fund the acquisition via a combination of debt and equity. Debt-funding ratio of 60%/80%/100% implies DPU accretion of 0.3%/1.9%/3.6%.
  • While Frasers Centrepoint Trust has the capacity to fully fund the acquisition via debt, which would take pro-forma FY18 gearing to 36.3% (vs 28.6%), we believe 80%/20% debt/equity funding mix is more plausible and leaves headroom for further acquisitions, which may be on the horizon.

Our Thoughts

  • We see this as a significant opportunity for Frasers Centrepoint Trust to build an additional pipeline apart from the ROFR from its Sponsor (inclusive of Waterway Point, Northpoint South Wing). The underlying malls held under the fund have a similar DNA to Frasers Centrepoint Trust’s anchor malls – dominant suburban retail spaces with a strong catchment allowing stable earnings through market cycles.
  • In addition, we see investors taking this news positively given
    1. immediate DPU accretion, and
    2. locking in a new growth runway for Frasers Centrepoint Trust through indirect exposure to quality retail mall assets in Singapore.
  • The Sponsor FRASERS PROPERTY LIMITED (SGX:TQ5) has also recently acquired a c.17.8% stake in PGIM, which could be injected into Frasers Centrepoint Trust over time, further bolstering returns.
  • Separately, we believe that the acquisition could also serve as a new gateway for the REIT into Malaysia, in addition to its 31% stake in associate Hektar REIT, which owns 2m sqft of retail NLA in Malaysia.
  • We currently have a BUY call with Target Price of S$2.40 based DCF; estimates unchanged pending completion of the deal.

Carmen TAY DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-02-28
SGX Stock Analyst Report BUY MAINTAIN BUY 2.400 SAME 2.400